HWANGE COLLIERY COMPANY LIMITED - Audited Abridged Financial Results For The Year Ended 31 December 2017

Release Date: 29/03/2018 08:00
Code(s): HWA
 
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Audited Abridged Financial Results For The Year Ended 31 December 2017

HWANGE COLLIERY COMPANY LIMITED

(Incorporated in Zimbabwe)

ZSE SHARE CODE: HCCL.ZW ISIN:ZW0009021934

JSE SHARE CODE: HWA ISIN: ZW00009011934

LSE SHARE CODE: HWA ISIN: ZW0009011934

AUDITED ABRIDGED FINANCIAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2017



CHAIRMAN’S STATEMENT

On behalf of the Board of Directors, I present the audited financial results of Hwange Colliery
Company Limited for the year ended 31 December 2017.

FINANCIAL PERFORMANCE

The Company’s performance in 2017 improved in comparison to the 2016 financial year. The loss for
the year narrowed by 51% from US$89.9 million recorded in 2016 to US$43.8million during the year
under review.

Revenue increased by 41% from US$39.9 million in 2016 to US$54.5 million in 2017. This increase is
attributed to increased sales volume from the 921 000 tonnes recorded in 2016 to 1.2 million tonnes
in 2017.



PERFORMANCE

Although better than the comparable period in 2016, the company’s performance for the period under
review fell short of budgetary targets. This was due to low production levels attributable to working
capital constraints. Monthly production average was 110,000 tonnes compared to the budgeted
monthly production of 340,000 tonnes. As a result, the Company failed to meet the market demand.




Total sales tonnage was 1,288,485 tonnes against a budget of 3,607,799 compared to 921,627 and
3,597,050 respectively recorded in 2016. Cost of sales reduced by 32% mainly as a result of the
following initiatives:




    a) Reduced labour costs resultant from a voluntary retrenchment exercise carried out during the
           year


    b) Reduction in contractor costs and contractor rates
    c) Underground mine, coke-works and wet screen plant costs accounted for as care and
         maintenance costs


    d)   Non recurring cost of $19m incurred in 2016 relating to a stock adjustment.



SCHEME OF ARRANGEMENT


The Company’s scheme of arrangement with its creditors afforded the Company the operating space
while building the financial resources to capacitate the Company to meet its financial obligations.



The Company is grateful for the support received from all its stakeholders and still requires such
support notably from its creditors, employees, suppliers and shareholders. The Board remains
confident that the turnaround efforts shall yield the desired results.




OUTLOOK

As demonstrated by the financial results, there are signs of recovery. The narrowing of the loss
position confirms the Company is on course to recovery. Strategic priorities for the company’s year-
end results were the following;




INCREASED PRODUCTION

During the year under review, the Company focused on production increase whose results are
confirmed by the increase to 1.2 million tonnes from the 921 000 tonnes recorded in 2016.




Open Cast Mining

The company’s open cast operation contributed 589,142 tonnes for the year which represents 47% of
the total year end production. There were notable constraints in the logistics and processing section
of the value chain which is being addressed. Coal movement was largely by road which was an
expensive mode of coal movement. The revival of the National Railways of Zimbabwe will come as a
solution to the logistical requirements for the product to reach to customers in a cost-effective way.
Efforts continue to be made to secure working capital.




Resuscitation of Underground Mine Operations

The Company managed to bring back underground mine into production beginning quarter 4 of 2017.
While the resuscitation of the underground operation was delayed, its resuscitation is clearly a sign
towards recovery as production of high value products is set. Further, the company’s capacity to
generate export sales from coking coal and coke is enhanced. While foreign currency remained a
challenge during the year, support received from the Reserve Bank of Zimbabwe in availing foreign
currency needed to import the key pieces of equipment for the underground mine is appreciated.




Coke Production

The Company’s intended takeover of the Hwange Coal Gasification Company (HCGC) Coke Oven
Battery pursuant to a BOOT Agreement with its Chinese partners in HCGC was delayed.
Engagements remain in place to ensure this is achieved given the importance to focus on high value
products that enhance the Company’s profitability. This matter is under cautionary and shareholders
shall be updated on the outcome of the engagements related to the intended takeover.

Cost reduction

The Company adopted a low cost high productivity strategy. This has enabled the Company to
significantly reduce its costs. The employment costs have reduced owing to the short time working
arrangement as well as revision of employment benefits in line with industry best practice as well as
Company’s capacity to pay.



Zimbabwe Power Company’s Stage 3 Expansion

The Company concluded an Exploration Agreement with Fugro Earth Resources to undertake
exploration and drilling of the Western Areas Concession. Thereafter, mine development will follow
after securing funding for this phase. Related to this, the Company has engaged KPMG Financial
Advisory Services for purposes of fund raising for Western Areas development.




Improve efficiencies and competitiveness

As the company increases the thrust on the core business of mining, it will also look at ways of
allowing other entities to assist in the running of town services such as road maintenance, electrical
power distribution and sewage treatment. The adoption of enterprise resource planning systems to
automate the administration of the business will also improve efficiencies and lower the cost per ton of
coal produced.




REALISATION OF POTENTIAL



Strategic plans to unearth the Company’s potential are being developed and these include:-

a)      Increasing the volume of high value and margin coking coal
       Apart from resuscitating its underground mining operations, the company will develop a
       second underground mining section so that coking coal production will double in the coming
       year. In addition, opencast operations at the JKL pit will resume in order to increase high
       value coking coal in the product mix.



b)     Rebuild or replacement of Hwange Colliery’s own Coke Oven Battery

       The company’s coke oven battery was shut down in mid-2014 in a controlled manner in order
       to prevent damage to the oven furnaces. Despite many interventions over many years to
       implement a rolling rebuild, the plant was very old and beyond its economic life. Therefore the
       company has invited bidders to tender for the full rebuild of the coke oven battery, by-
       products plant and ancillary plants or the supply of a completely new coke oven battery of the
       same capacity together with the by-products and ancillary plant.



c)     Fixed plant repair and restoration of full capacity

       As a mine that has operations spread-out on a wide geographic area, it is important to use
       efficient means of transporting coal from the pits to the processing plants and the rail siding.
       Therefore the repair and full capacity restoration of the coal handling plant, conveyor belts
       and the No 2 processing plant is a key enabler for high volume and least cost production.



d)     Development of Western Areas and Lubimbi West and East Concessions
        The life of mine at the current open cast operations is estimated to be less than 5 years.
        Therefore the development of the Western Areas coal fields to a full scale mining operations
        is critical. A 25 years coal supply agreement was already signed with the Zimbabwe Power
        Company’s Hwange Power Station Stage 3 expansion. In addition, a 25 years’ coal supply
        agreement was also signed with an Independent Power Producer whose operations will be
        located at Milibizi in Matebeleland North Province. Bidders have been invited to tender for
        development of the coal bed methane resources at Lubimbi East. These new developments
        are important for the future of the company as it turns around and re-aligns itself for higher
        volume production and focuses on least cost production techniques.

e)     Increase volume of export sales

       Given the deliberate focus on increasing the mix of high value and margin coking coal and
       coke, the company will grow its market share in the neighbouring countries. Hwange
       Colliery’s coking coal and coke meets exacting quality specifications in the ferro-chrome
       industries and smelters. In collaboration with the National Railways of Zimbabwe, the
       company will develop dedicated solutions for the delivery of coking coal and coke products to
       customers in the region and within the country.



DIRECTORATE



During the year under review Messrs W. T. Kutekwatekwa and A. M Ngapo resigned from the Board
                       th       th
of Directors effective 18 and 28 July 2017 respectively.
Mr W. Chitando who was serving as the Board Chairman resigned from the Board on the 7 December
2018 following his appointment as Minister of Mines and Mining Development. The Company
acknowledges the contribution made by the three (3) resigned Directors and wishes them well in their
current and future endeavours.




There are still vacancies on the Board which require shareholders to make appointments in order to
strengthen the Board.




APPRECIATION



Whilst the Company was still in a loss position, the financial results demonstrate signs of recovery
resultant from a concerted team effort to turnaround the Company. The Board is grateful for the
support rendered by all stakeholders to its turnaround plans.

I would like to express my gratitude to my fellow Directors, Management and Staff for their collective
efforts and dedication to the Company.




J. MUSKWE (MRS)
Acting Chairperson

22 February 2018

CONDENSED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR
THE YEAR ENDED 31 DECEMBER 2017
                                       NOTES         2017             2016
                                                      USD             USD
Revenue                                    5   54 497 858       39 911 465
Cost of sales                                (53 150 059)     (77 742 700)
Gross profit/(loss)                             1 347 799     (37 831 235)
Other Income                               7      795 358          545 008
Other gains and losses                     8       (3 609)         790 000
Marketing costs                               (1 232 479)      (2 473 101)
Administrative costs                         (25 098 636)     (47 582 295)
Loss on disposal of Treasury Bills            (6 521 040)                -
Operating loss before interest and tax       (30 712 608)     (86 551 623)
Finance costs                              9 (13 062 019)      (1 992 977)
Share of loss from equity accounted       10      (63 113)     (1 365 390)
investments
Loss before tax                           11 (43 837 740)     (89 909 990)
Income tax expense                        12             -               -
LOSS FOR THE YEAR                            (43 837 740)     (89 909 990)
Other comprehensive income
Share of other comprehensive income                                -                   -
of equity accounted investments, net of
tax
Other comprehensive income, net of                                 -                   -
tax
TOTAL COMPREHENSIVE LOSS                             (43 837 740)        (89 909 990)
FOR THE YEAR
Attribute loss per share                    13.1           (0.24)              (0.49)
– Basic

   - Diluted                                13.2           (0.24)              (0.49)
Headline loss per share                     13.3           (0.20)              (0.48)
   - Basic
   - Diluted                                13.4           (0.20)              (0.48)

CONDENSED STATEMENT OF FINANCIAL POSITION
As at 31 December 2017

                                          Notes            2017                2016
                                                           USD                 USD
ASSETS
Non-current assets
Property, plant and equipment               14      107 569 137         119 261 362
Investment property                         15        4 490 000           4 490 000
Investments accounted for using the         16       14 754 031          14 816 144
equity method
Intangible assets                           17          699 311             968 842
Inventories- non current portion            18        8 138 714           9 218 421

                                                    135 650 193         148 754 769
Current assets
Stripping activity asset                    19        8 871 563                   -
Inventories                                 20       13 413 017          15 228 838
Trade and other receivables                 21       31 427 775          18 295 306
Cash and cash equivalents                   23        8 864 181             340 024
                                                     62 576 536          33 864 168
Total Assets                                        198 226 729         182 618 937
EQUITY AND LIABILITIES
Capital and reserves
Share Capital                               24        45 962 789          45 962 789
Share Premium                                            577 956             577 956
Non-distributable reserves                             4 358 468           4 358 468
Revaluation reserves                                  39 948 518          39 948 518
Accumulated losses                                 (302 429 693)       (258 591 953)
                                                   (211 581 962)       (167 744 222)
Non-current liabilities
Finance lease liability                     26          600 000             700 000

Borrowings                                 26.1     150 312 838          78 634 350
Long term creditors                          27     210 226 850                   -
Income tax liability                                 10 054 850                   -
Differed tax liability                                     -               -
                                                 371 194 538      79 334 350
Current Liabilities
Finance Lease Liability                  26.2        390 969         377 161

Borrowings                               27.2              -      12 396 334
Trade and other payables                   27     24 364 013     237 037 122
Provisions                                 28     13 859 171      11 163 342
Current income tax liability                               -      10 054 850
                                                  38 614 153     271 028 809
Total equity and liabilities                     198 226 729     182 618 937

CONDENSED STATEMENT OF CASH FLOWS

For the year ended 31 December 2017

                                         Notes           2017           2016
                                                          USD            USD
Loss before tax                                   (43 837 740)   (89 909 990)
Adjustment for non-cash items
Foreign exchange/(loss)                                 3 609      (790 000)
Impairment of stripping activity asset     13               -      4 849 819
Depreciation                                       13 399 288     17 035 805
Amortisation                                          269 530        269 530
Loss on disposal                                            -        149 499
Share of loss from equity accounted                    63 113      1 365 390
investments
Finance cost                                        13 016 019      1 992 977
Discount received                                  (1 756 767)               -
Insurance claim                                          (129)        (33 500)
Loan interest charges written off                            -    (2 001 243)
Operating cashflow before changes in              (18 797 079)   (67 071 714)
working capital
Changes in working capital
Decrease in inventory                                2 895 528     19 951 225
Increase in stripping activity asset               (8 871 563)               -
(Increase/decrease in receivables)                (13 132 469)     13 592 311
(Increase/ decrease in provisions)                   2 695 829    (3 102 035)
Decrease in trade and other payables             (212 673 109)    (4 468 766)
Cash utilised in operating activities            (247 882 860)   (41 098 979)
Interest paid                                                -        (19 725)
Tax Paid                                                     -               -
Net cash flows utilised in operating             (247 882 860)   (41 118 704)
activities
CASH FLOWS FROM INVESTING
ACTIVITIES
Acquisitions of property plant and                 (1 707 063)       (68 642)
equipment
Net cash flows utilised in investing               (1 707 063)       (68 642)
activities
CASH FLOWS FROM FINANCING
ACTIVITIES
Increase in long-term creditors                   210 226 850               -
Proceeds from borrowings                           52 284 000      59 216 000
Repayment of borrowings                            (4 335 506)   (18 216 000)
Insurance claim                                            129              -
Net cash flows generated from                     258 175 473      41 000 000
financing activities
Net decrease in cash and cash                                           8 585 550               (187 346)
equivalents
Cash and cash equivalents at                                             278 631                 465 977
beginning of the year
Cash and cash equivalents at the end               17                   8 864 181                278 631
of the year


CONDENSED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2017
                    Share             Non-        Share   Revaluation         Accumulated              Total
                    capital   distributable    premium       reserve               losses              USD
                     USD          reserves         USD          USD                  USD
                                      USD
Balance at      45 962 789         577 956    4 358 468   39 948 518         (168 681 963)      (77 834 232
1 January
2016
Total                     -               -           -             -         (89 909 990)      (89 909 990)
Comprehen
sive loss for
year
Balance at      45 962 789        577 956     4 358 468   39 948 518         (258 591 963)   (167 744 222)
31
December
2016
Balance at      45 962 789        577 956     4 358 468   39 948 518         (258 591 963)   (167 744 222)
01 January
2017
Total                     -               -           -             -         (43 837 740)      (43 837 740)
comprehens
ive loss for
the year
Balance at      45 962 789        577 956     4 358 468   39 948 518         (302 429 693)   (211 581 962)
31
December
2017


NOTES TO THE ABRIDGED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER
2017

1 Nature of operations and general information

Hwange Colliery Company Limited is a Company whose principle activities include extraction,
processing and distribution of coal and coal products and provision of health services and various
retail good and services. Its activities are grouped into the following three (3) area:

i)Mining – the extracting, processing and distribution of coal and coal products.

ii)Medical services – Provides health care to staff members and surrounding community.

iii)Estates – The division provides properties for rental and sale retail goods and services.

The Company is a limited liability Company incorporated and domiciled in Zimbabwe. It is listed
primarily on the Zimbabwe Stock Exchange (ZSE) and has secondary listing of the Johannesburg
Stock Exchange (JSE) and London Stock Exchange (LSE).
                                                                                                       th
The Company’s financial statements were authorized for issuing by the Board of Directors on 13
March 2018.



Presentation currency
These financial statements are presented in United States Dollars being the factional and reporting
currency of the primary economic environment in which the Company operates.

2 Statement of compliance

The financial statements of the Company have been prepared in accordance with International
Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board
(IASB). The financial statements are based on statutory records that are maintained under the
historical cost convention. Investment property, landing buildings are held under the fair value model.

3 Changes in accounting policies

3.1 New and revised standards and interpretations – Adopted

The company has not adopted any new standards or amendments that have a significant impact on
the Company’s results or financial position.

4 Summary of accounting policies

4.1 Overall considerations

The financial statements have been prepared using the measurement bases specified by IFRSs for
each type of asset, liability income and expense. The measurement bases are more fully described in
the accounting policies below:

4.2 Investments in associates and joint ventures

Investments in associates and joint ventures are accounted for using the equity method.

The carrying amount of the investments is increased or decreased to recognize the Company’s share
of the profit or loss and other comprehensive income of the associate or joint venture. These changes
include subsequent depreciation, amortisation or impairment of the fair value adjustments of the
assets and liabilities.

Unrealised gains/losses on transactions between the Company and its associates or joint ventures
are eliminated to the extent of a Company’s interest in those entities. Where unrealised losses are
eliminated, the underlying asset is also treated from impairment.

4.3 Revenue recognition

Revenue comprises revenue from the sale of good and the rendering of services. Revenue is
measured by reference to the fair value of consideration received or receivable by the Company for
goods supplied and services provided, excluding sales taxes, rebates, and trade discounts.

4.4 Operating expenses

Operating expenses are recognized in profit or loss upon utilisation of a service or at the date of their
origin. Expenditure for warranties is recognised and charged against the associated provisions when
the related revenue is recognised.

4.5 Finance Costs

Finance costs are reported on an accrual bases using the effective interest method

                                                               2017                               2016
                                                               USD                                USD
5 Revenue
Mining                                                  44 292 950                          32 274 013
Medical services                                           668 434                             561 763
Estates                                                  9 536 474                           7 075 689
                                                        54 497 858                          39 911 465
6 Segment reporting

For management purposes, the Company is organised into divisions based on its products and
services and has three reportable segments, as follows:

i)Mining – Extracting, processing and distribution of coal and coal products.

ii)Medical services – Provides health care to staff members and the surrounding community.

iii)Estates – The division provides property for rental and sale retail goods and services.

No operating segments have been aggregated to form the above reportable operating segments.

Management currently identifies the Company’s three business lines as its operating segments.
These operating segments are monitored by the company’s Board of Directors and strategic
decisions are made on the basis of adjusted segment operating results.

The Company’s revenues from external customers are divided into the following geographical areas:

Sales within Zimbabwe                                   51 970 674                            38 619 918
Sales else in Sub-Saharan                                2 527 184                             1 292 267
Africa
Total Revenue                                           54 497 858                            39 911 465
7 Other income
Insurance claims                                               129                                33 500
Rental income                                              528 879                               407 193
Sale of Scrape metal                                        90 037                                12 312
Sundry Income                                              176 313                                92 003
                                                           795 358                               545 008
8 Other gains and losses
Foreign exchange loss                                       (3 609)                                    -
Fair Value gains on investment                                    -                              790 000
property (Note 15)
                                                            (3 609)                              790 000
Finance costs
Interest on loans and                                   12 884 362                             1 872 844
overdrafts
Interest on Leases                                         177 657                               120 113
                                                        13 062 091                             1 992 977


Interest on loans and overdraft comprise of interest charged on the Government of Zimbabwe
Treasury Bills at a rate of 7% per annum, ZAMCO and EXIM loan and finance lease facilities at an
interest rate of 7% and 5% per annum respectively.

10 Share of losses from equity accounted investments

Included in this amount is the Company’s share of loss after tax from:

Clay Products (Private) Limited                            (63 113)                             (168 035)
Hwange Coal Gasification                                          -                           (1 365 390)
Company
                                                           (63 113)                           (1 365 390)
11 Loss before tax
Loss before tax for the year
has been arrived at after
charging the following:
Allowance for credit losses                              2 891 699                            10 787 450
Amortisation                                               269 530                               269 530
Annual licence fees – mining                               125 000                               248 430
rights
Audit fees                                                110 505                             97 399
Depreciation on property, plant                        13 399 288                         17 035 805
and equipment
Directors’ emoluments:
-Executive Directors                                      439 606                            327 451
-Non-Executive Directors                                  143 319                            113 827
Employee benefits expense                              26 783 564                         28 466 494
(note 11.1)
Impairment loss on stripping                                      -                        4 849 819
activity asset (note 19)
Loss on disposal of assets                                      -                            149 499
Retrenchment package                                    2 346 042                          2 020 787
Loss on disposal of Treasury                            6 521 040                                  -
bills
11.1 Employee benefits
expense
Salaries and other                                     25 175 753                         26 945 033
contributions
Contribution of Mining Industry                         1 056 360                          1 114 083
Pension Fund
Contribution to National Social                           551 451                            407 378
Security Authority
                                                       26 783 564                         28 466 494


Employee benefit expense amounting to USD 11 558 294 (2016:USD 15 135 433) was charged
directly to cost of sales.

12 Income tax

12.1 Current tax:

Current tax                                                       -                                    -
Deferred tax                                                      -
Income tax (credit)/expense                                       -                                    -
13 Loss per share
13.1 Basic
Loss attributable to                                 (43 837 740)                       (89 909 990)
shareholders
Weighted average number of                            183 720 699                        183 720 699
ordinary shares in issue
Basic loss per share                                         (0.24)                            (0.49)


Basic loss per share is calculated by dividing the loss attributable to shareholders by the weighted
average number of ordinary shares in issue during the year, excluding the average number of
ordinary shares purchased by the Company and held as treasury shares.

13.2 Diluted

For diluted loss per share the weighted average number of ordinary shares in issue is adjusted to
assume conversion of all dilutive potential ordinary shares being share options granted to employees.

The loss used in the calculation of all diluted loss per share measures are the same as those for the
equivalent basic loss per share measures as outlined above.

Loss used to determine diluted                       (43 837 740)                       (89 909 990)
loss per share
Weighted average number of                            183 720 699                        183 720 699
ordinary shares in issues
Diluted loss per share                                       (0.24)                            (0.49)
13.3 Headline loss per share

Headline loss per share excludes all items of a capital nature and represents an after tax amount, it is
calculated by dividing the headline loss shown below by the number of shares in issue during the
year.

IAS 33 – loss per share                                      (0.20)                             (0.48)
13.4 Diluted headline loss
per share
Loss used to determine diluted                        (37 320 784)                       (88 418 697)
headline loss per share
Weighted average number of                            183 720 699                        183 720 699
ordinary shares in issue
Diluted headline loss per share                              (0.20)                             (0.48)
14 Property, plant and
equipment
Carrying amount at the                                119 261 362                        136 344 524
beginning of the year
Additions                                                1 707 063                            102 142
Charged profit or loss                                           -                                  -
Disposals                                                        -                        (1 075 367)
Impairment                                                       -                                  -
Depreciation                                          (13 399 288)                       (17 035 805)
Depreciation on disposals                                        -                            925 868
Carrying amount at the end of                         107 569 137                        119 261 362
year


14.1 Finance lease arrangements

The Company has certain property that is held under a finance lease arrangement. As at 31
December
2017, the carrying amount of the property is USD 720 931 (2016: USD 775 095) included in freehold
land and buildings. Finance lease liabilities are secured by the related assets held under finance
leases.

15 Investment property

Valuation at 1 January                                  4 490 000                          3 700 000
Fair value gains (included in                                   -                            790 000
other gains and losses)
Valuation at 31 December                                4 490 000                          4 490 000


The following amount has been recognised in the statement of comprehensive income:

Rental income                                             528 879                            407 193
16 investments using the
equity method
Investments in associates                                       -                             63 113
Investments in joint venture                           14 753 031                         14 753 031
                                                       14 753 031                         14 816 144
16.1 Investments in associates
Carrying amount as at 1                                     63 113                           231 148
January
Share of loss                                             (63 113)                          (168 035)

Share of other comprehensive                                      -                                  -
income
Dividends paid                                                   -                                -
Carrying amount as at 31                                         -                           63 113
December


The Company holds a 49% voting and equity interest in Clay Products (Private) Limited. Hwange
Colliery Company Limited also holds a 44% voting and equity interest in Zimchem Refineries (Private)
Limited. The investments are accounted for under the equity method.

The shares are not publicly listed on a stock exchange and hence published price quotes are not
available. The aggregate amounts of certain financial information of the associates can be
summarised as follows:

16.2 Investment in joint venture

Carrying amount as at                                 14 753 031                        15 950 386
1 January
Additional investment                                          -                                  -
Share of loss                                                  -                        (1 197 355)
Dividends received                                             -                                  -
Carrying amount as at 31                              14 753 031                        14 753 031
December

Hwange Coal Gasification Company (Private) Limited is the only jointly controlled entity and the
ultimate ownership interest is 25%. Hwange Colliery Company Limited’s investment in the joint
venture is being acquired on a piecemeal basis. The investment in the joint venture has been
accounted for using the equity method.

17 Intangible assets

Carrying amount at the                                   968 842                          1 238 372
beginning of the year
Amortisation                                            (269 530)                         (269 530)
Carrying amount at the end of                             699 312                           968 842
the year

The Company has an enterprise resource planning (ERP) software that supports the administration
and control of the Company. Some modules for mine planning and marketing are still to be
developed. Mining rights comprise coal mining claims which are yet to be mined. No intangible assets
have been pledged as security for liabilities.

The Company has five (5) mining concessions, Hwange option area, Hwange Concession, Western
areas of Hwange town, Lubimbi East and Lubimbi West. The special grants, Western areas of
Hwange town, Lubimbi East and Lubimbi West measure 9 648, 4 200 and 10 995 hectares of minable
area respectively and were awarded by the Government of Zimbabwe on 31 July 2015. These
Concessions will increase the life of the mine by an estimated 50 years.

18 Inventories – non current portion
Balance at 1 January                                  10 683 011                         23 325 595
Additions to stock piles                                       -                                  -
Cost of sales                                                  -                          (605 329)
Coal fines write down to net                                   -                       (10 683 008)
realisable value
Sales                                                  (950 752)                        (1 354 248)
Balance at 31 December                                 9 732 259                        10 683 011
Balance at end of year is
classified as follows:
Non- current portion                                   8 138 714                          9 218 421
Current portion (included in                           1 593 545                          1 464 590
inventories)
                                                       9 732 259                        10 683 011

The Company accumulated coal fines over the years for which an active market was identified in
2009. Coal fines in excess of the average annual uptake of the product have been classified as non-
current assets.

No coal fines were written down in 2017 (2016: USD 10 638 008).

19 Stripping activity asset
Balance at 1 January                                           -                         4 849 819
Current year pre-stripping                             8 871 563                                 -
costs
Costs charged to cost of sales                                   -                               -
Impairment of stripping activity                                 -                       4 849 819
asset (note 12)
Balance at 31 December                                 8 871 563                                     -
Balance at end of year
allocated as follows:
Non-current assets                                             -                                     -
Current assets                                         8 871 563                                     -
Balance at end of year                                 8 871 563                                     -

20 Inventories
Raw materials/consumables                              9 144 096                         8 656 781
Finished goods
-coal                                                  2 675 375                         4 244 693
-coal fines (note 18)                                  1 593 545                         1 464 590
-coke                                                          -                           862 774
                                                      13 413 016                        15 228 838

During the year ended 31 December 2017, a total of USD307 544 (2016: USD 995 201) worth of
inventories was included in profit and loss as an expense resulting from write down of inventories to
net realisable value. No reversal of previous write-downs was recognised as a reduction of expense in
2017 (2016:nil)

21 Trade and other receivables
Trade receivables, gross figure                       45 444 344                         33 426 017
Allowance for credit losses                         (23 430 994)                       (20 539 295)
Trade receivables, net                                22 013 350                         12 886 722
Other receivables                                      9 414 425                          5 408 584
                                                      31 427 775                         18 295 306

All amounts are short-term. The net carrying value of trade receivables is considered a reasonable
approximation of fair value.

22 Related party balances and transactions

Included in the trade receivable and trade payable balances are related party balances that resulted
from transactions that occurred between Hwange Colliery Company Limited and its related parties

Related party receivables:
Hwange Coal Gasification                              15 299 281                         8 820 694
Company
Clay products (Private)Limited                            53 341                             9 797
Zimchem Refineries (Private)                             235 581                           237 328
Limited
                                                      15 518 203                         9 067 819
Related party payables:
Hwange Coal Gasification                                14 011 004                   11 217 557
Company
Zimchem Refineries (Private)                                39 666                        37 773
Limited
                                                        14 050 670                   11 255 330
Transaction with Hwange Coal                             4 833 006                    3 527 997
Gasification Company(HCGC)
Transactions with clay                                        7 705                        9 797
products (Private) Limited
Transactions with Zimchem                                   19 481                        14 721
Refineries (Private) Limited
Loans from shareholders                               119 955 416                    59 216 000
Transactions with key                                   3 285 191                     3 263 907
management personnel

23 Cash and cash equivalents

For the purposes of statement of cash flows, cash and cash equivalents include cash on hand and in
banks net of outstanding bank overdrafts.

Bank and cash balances                                   8 864 181                      340 024
Bank overdrafts                                                  -                      (61 393)
                                                         8 864 181                      278 631

The bank overdrafts are unsecured. The interest rate ranges between 7% to 9% per annum.

24 Share capital
Authorised
204 000 000 ordinary shares of                          51 000 000                   51 000 000
USD 0.25 each
Issued and fully paid
110 237 432 ordinary shares of                          27 559 358                   27 559 358
USD 0.25 each
5 925 699 ordinary shares                                1 514 039                     1 514 039
issued under share option
scheme
67 558 568 “A” ordinary shares                          16 889 392                   16 889 392
of USD 0.25 each
                                                        45 962 789                   45 962 789

25 Finance Lease Liability
Non-current                                                600 000                       700 000
Current                                                    390 969                       377 161
                                                           990 969                     1 077 161

The finance lease liability carrying amount is disclosed as follows:

25.1 OK Zimbabwe
Long-term portion                                          600 000                       700 000
Add: short-term portion                                    390 969                       377 161
                                                           990 969                     1 077 161
Finance lease liability
Principal                                                1 000 000                     1 000 000
Accrued interest                                            (9 031)                       77 161
                                                           990 969                     1 077 161
25.2 Reserve Bank of Zimbabwe
Long-term portion                                              -                               -
Short-term portion                                             -                               -
Total                                                          -                               -
Principal                                                      -                      18 216 000
Interest                                                       -                               -
Repayment                                                      -                    (18 216 000)

In 2015, the Reserve Bank of Zimbabwe assumed the PTA finance lease facility of USD 18 216 000
which was obtained by the Company in 2015 relating to the acquisition of coal mining equipment from
Belaz. The finance lease facility was assumed by the Reserve Bank of Zimbabwe as a secured, 3-
year term loan at an interest rate of LIBOR + 9% p.a.

26 Borrowings
26.1 Long-term loans
Export Import Bank of India                         13 703 666                        13 005 760
(EXIM)
Government of Zimbabwe                             119 955 416                        59 216 000
Zimbabwe Asset Management                           16 653 756                        16 201 625
Corporation (ZAMCO)
                                                   150 312 838                       88 423 385
Less – current portion of long-                              -                       (9 789 035)
term loans
                                                   150 312 838                        78 634 350

26.2 Short-term Loans
Overdrafts                                                     -                          61 393
Agribank                                                       -                       2 545 906
Add current portion of long-                                   -                       9 789 035
term loans
                                                               -                      12 396 334

“As part of the ongoing restructuring plan, the Government of Zimbabwe through the Ministry of
Finance and Economic Development issued treasury bills of USD 41 million and USD 18.216 million
in settlement of the Mota Engil and RBZ/PTA Bank loan, respectively. The Government of Zimbabwe
has agreed that the Government support be treated as a loan payable over 15 years with a 7%
interest per annum in accordance with the provisions of the scheme of arrangement”

27 Trade and other payables- Current

Trade                                                9 382 539                       60 741 155
Other                                               14 981 474                      176 295 967
                                                    24 364 013                      237 037 122
Trade and other payables –
Long term
Trade                                               73 277 839                                  -
other                                              136 949 011                                  -
                                                   210 226 850                                  -

28 Provisions
Provision for rehabilitation                          7 217 507                        6 371 883
(note 30.1)
Other provisions (30.2)                              6 641 664                         4 791 459
                                                    13 859 171                        11 163 342

28.1 Provision for rehabilitation
At 1 January                                          6 371 833                        5 726 693
Charged to profit or loss:
Additional Provisions made                                  845 624                             645 190
during the year
Amounts used during the year                                      -                                   -
At 31 December                                            7 217 507                           6 371 883

28.2 Other provisions
Death benefits                                            3 528 559                           3 007 717
Leave pay and bonus                                       3 113 105                           1 783 742
provisions
                                                          6 641 664                           4 791 459

29 Going concern
The Company is experiencing the following challenges which have an effect on its ability to continue
operating as a going concern:

29.1 Recurring losses
The Company incurred a loss for the year of USD 43 837 740 (2016: USD89 909 990). The reduction
in the reported loss by the Company is attributable to an increase in production volumes from 969 153
tonnes in 2016 to 1 280 829 tonnes in 2017 and various cost cutting measures implemented by the
Company.

29.2 Negative equity
As at 31 December 2017, the Company’s total liabilities exceeded total assets resulting in a negative
equity position of USD 211 581 962 (2016: USD 167 744 222). This is attributable to recurring losses
which eroded the capital and reserve.

29.3 Low machine availability
The Company experienced low machine availability mainly as a result of technical challenges faced in
operating the equipment and inadequate working capital. In view of the above, the Directors have
assessed the ability of the Company to continue to operate as a going concern and are of the view
that the preparation of these financial statements on a going
concern basis is appropriate as supported by the following plans which are intended to address these
challenges:




Scheme of Arrangement
As at 31 December 2016, the Company had litigation claims brought against it as follows:

Value of cases for which judgement has been                                                  27 924 528
passed against the Company*
Value of cases pending judgement at the courts                                               17 411 297
Total value of litigation cases                                                              45 335 825

The Company entered into a Scheme of Arrangement which was approved by its creditors in April
2017 and sanctioned by the High Court on the 15th of May 2017. The Scheme of Arrangement was
aimed at creating operating space for the Company to focus on its turnaround plans without the
pressure from creditors while at the same time addressing creditors’ claims in a systematic manner.

The Scheme of Arrangement included a conversion of short term debts into long term debts thus
restructuring the Company’s balance sheet and making it attractive to financial institutions to extend
lines of credit.

All lawsuits against the Company and all matters as had been set down at Court were removed from
the Court Rolls. In the result, all matters involving labour, bulk of which relate to outstanding salaries
were ring fenced for payment under the scheme of arrangement.

Focus on core business and least cost production strategy
The Company is no longer a monopoly. New entrants with a lower overhead cost have entered the
coal mining sector. The Company continues to review its cost structure so that it is able to compete in
the face of competition. Apart from employment related cost reductions, the Company is determined
to focus on its core business and allow the non-core units to operate independently without any
financial support from the mining operations. The Company will sweat its assets and unlock value
from its non-core assets so that it is able to direct its resources towards increasing production and
also deal with its debts in the Scheme of Arrangement. Valuation of the town infrastructure and
properties has been initiated in an effort to determine how much of the scheme debts could be
covered by the sale of these assets. The approval of the shareholders shall be sought at the
appropriate time.

Improving the sales mix and increasing production
While the Company is focussed on ramping up production to above break-even point, it is also
cognisant of the fact that the sales mix is important in order to lower the break-even point and to
achieve profitability. Therefore, the mining contractor’s operations are dedicated to mining the lower
value thermal and industrial coal while the Company’s capacity has been deployed to mine higher
value coking and thermal coal.

The company has secured working capital facilities to import the remaining underground mining
equipment and to carry out mid-life interventions on its own mining equipment. The thrust is to rely
more on its own capacity and to reduce equipment hire. At the same time, the Company will develop
and secure export markets in Zambia, South Africa and the Democratic Republic of Congo so that it
can finance its imported production inputs such as spare parts and explosives. The rapid results
initiatives and principles will continue to be inculcated in its production and maintenance processes in
order to improve productivity and efficiencies. The Company’s negotiations to take over the Hwange
Coal Gasification Company coke oven batteries are underway along with the enquiries to replace or
rebuild its own coke oven batteries. The first section of the underground mine will be operating at full
capacity by the mid 2018 after operations resumed in December 2017. The development of a second
and a third portal at underground mining is at the initial stages.

Increasing export sales
In the domestic and regional market, the Company’s coal has a reputation for its high quality. The
market has been segmented in a way that recognises high, medium and low volume users. As
determined by the purchasing pattern, customer loyalty programmes have been mapped out to
improve customer retention. Thermal and industrial coal customers are encouraged to keep strategic
stock on their premises in order to overcome periods of low coal supply due to break downs or other
unforeseen circumstances. For the tobacco farmers’ market, coal merchants are the preferred
distribution channel to this market segment so that products are available as close as possible to the
end user. The Company’s thrust is to increase export sales of coking coal and coke given their higher
price and margin. The target markets are Zambia, South Africa and the Democratic Republic of
Congo. The Company is promoting annual supply contracts in order to assure customers of product
availability.

By Order of the Board

A. MASIYA
COMPANY SECRETARY

29 March 2018
Harare
Sponsor: Sasfin Capital (a member of the Sasfin group)

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